Anti-retrovirals a Taxing Burden

As employers increase their efforts to combat HIV/Aids through anti-retroviral programmes for employees, the question arises: why has South Africa’s tax legislation not made similar strides to help in the fight against the pandemic? Costs incurred by companies in establishing and running anti-retroviral programmes are generally considered tax deductible.The tax issue with these programmes arises more from the fringe benefits tax treatment of participants, especially in respect of their anonymity.

The provision of medical services under an anti-retroviral programme may constitute a taxable benefit in the hands of the employee or contractor.However, no fringe benefit value is placed on certain employer-provided medical services if the service is provided as part of a scheme or programme approved by the Registrar of Medical Schemes.

The exemption extends to unapproved schemes only if the treatment is available to employees who are not members of an approved medical scheme or, if they are members, the employer recovers the costs from the medical scheme. Where the benefit relates to medical services provided to employees at their place of work, the benefit is also exempt from fringe benefits tax.

Even more contentious is the provision of medication under any anti-retroviral programme, as the exemption for on-site services to employees does not extend to the provision of goods.So the employee is obliged to include in his or her gross income an amount equal to the cost incurred by the employer in supplying the medication to the employee any dependants, if applicable.

The cost of anti-retroviral treatment is steep and the fringe benefit implications for low-income employees are potentially crippling.An additional problem for companies is that to comply with the South African Income Tax Act, they could compromise the anonymity of HIV/Aids-infected staff.That is because companies are required not only to withhold employees’ tax from this fringe benefit, but also to disclose the fringe benefit on each individual’s IRP 5 certificate.

While SARS may argue that the Act’s secrecy provisions will protect an affected employee’s anonymity, the fact remains that in order to account for the fringe benefit, the payroll staff would have to be made aware of such a taxable benefit.The payroll staff would have to update this on the affected employee’s payslip and tax certificate, to ensure that the necessary tax is withheld.

An added complexity resulting from anti-retroviral programmes relates to the value added tax (VAT) implications of fringe benefits.In short, output tax is payable by the employer (but not recoverable from the employee) on the ‘value’ of the fringe benefit to employees in terms of the programme.The company will, however, be entitled to claim the input tax credit on the costs of any medication and on the costs of running the anti-retroviral programme.

As the focus on combating the HIV/Aids pandemic intensifies, tax legislation should follow suit. What is the point of a good programme if it merely adds to the tax burden of the people it is intended to help?

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